If you were starting again...

Closed-end funds and OEICs
stuart349734
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If you were starting again...

Postby stuart349734 » December 20th, 2016, 2:37 pm

My daughter is 30 and wants to start investing modest amounts into a Stocks and Shares ISA every year, with a view to not touching it until she retires in 35 years (or who knows when?) and would like me to choose her investments.

I've mainly invested in Investment Trusts for the past 25 years or so and whilst I've been pleased with the overall record, I'm trying to put myself in her position and think "what would I do if I was starting again?"

I've been investing long enough to realise that although there are many sound investment trusts, over the very long term, all are subject to market sentiment and with the best will in the world, I turn a bit of a blind eye to the inevitable periods of underperformance (or reversion to the mean?)

So I was thinking that for my daughter, or if I was starting again, my advice may be to use say, the Vanguard Lifestrategy 80% alone.

Without turning the discussion into an active vs passive bun-fight, I would be interested in people's views.

Lootman
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Re: If you were starting again...

Postby Lootman » December 20th, 2016, 2:43 pm

That Vanguard fund is a decent choice for someone who wants a very simple and "hands off" approach.

But you say she wants to choose her own investments which sounds to me like she might want something a little more hands on. My youngest son recently started investing and, with that kind of timeline, he wants to make some bold punts and learn as he goes. If he were in that Vanguard fund I think he would soon get bored.

stuart349734
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Re: If you were starting again...

Postby stuart349734 » December 20th, 2016, 3:00 pm

Sorry: "and would like me to choose her investments."

It's actually making me more nervous than choosing my own.

scotia
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Re: If you were starting again...

Postby scotia » December 20th, 2016, 3:06 pm

As Lootman suggests - she may get bored. So if she wants a bit more excitement, she may want to look at making modest investments relatively frequently into a range of Unit trusts - where the initial trading cost is not affected by the size of the investment. Then she can watch how sectors are behaving, and act accordingly. The frequent and often approach also irons out market swings which can affect once-a-year purchasing of a larger amount. Yes - mistakes will be made, but hopefully with a spread of investments they will have little overall effect, and valuable lessons will be learned. My eyes were opened by the dotcom boom - where supposedly reputable fund managers were piling into rubbish, and this was reinforced by the later bond crash where Banks were also piling into worthless investments, and the Governor of the Bank of England seemed blithely unaware of the impending world financial crisis. So yes - getting a bit of education while looking after one's own investments seems to me a good idea.

scotia
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Re: If you were starting again...

Postby scotia » December 20th, 2016, 3:10 pm

I wrote my previous reply before I saw your additional note:-
"and would like me to choose her investments."


I think I would try to guide her into making her own choices, possibly (initially) with a little friendly discussion

toofast2live
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Re: If you were starting again...

Postby toofast2live » December 20th, 2016, 3:12 pm

I would be tempted to combine that choice with some satellite etfs or ITs that provide exposure to known sources of outperformance. I don't have the etf information to hand but I would add a smallish dose of:

1. World Value etf
2. World Smaller Companies etf
3. World Private Equity etf
4. World Dividend Aristocrats etf.

Perhaps 5% in each?

PresumingEd
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Re: If you were starting again...

Postby PresumingEd » December 20th, 2016, 6:18 pm

When I started investing ITs were the only game in town for low cost regular investments. Now the world has changed and if I were starting again I would avoid the unnecessary complexities of IT investing (and stamp duty) and put it all into a cheap world tracker fund or ETF. Your original suggestion sounds good to me. Chasing alpha entails a lot of work and trading costs with no guarantee of success.

In fact I have been putting my £ where my mouth is by trading in my ITs for ETFS gradually, so the former have gone from 100% to about half of my total portfolio.

Urbandreamer
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Re: If you were starting again...

Postby Urbandreamer » December 20th, 2016, 6:24 pm

scotia wrote:I think I would try to guide her into making her own choices, possibly (initially) with a little friendly discussion


I'd echo that.
Nothing wrong with Vanguard Lifestrategy if she wants the simplest possible solution, but to me it seems more like picking a savings account, only with more risks! (of couse hopefully more rewards too)

There are so many options. She could pick one of MoneyObsevers model portfolios to match her risk/reward ratio. She could pick the 10 trusts that gave the best compound return over the last 10 years. She could have a core portfolio and buy interesting shares with the dividends produced by the core portfolio. She could do "the dogs of the DOW" or have a "cockroach" portfolio.

So many options.

Investing is a journey to be experianced with its joy and sorrows, laughter and tears. Choosing the path that you travel should be rewarding rather than something to get out of the way.

seekingbalance
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Re: If you were starting again...

Postby seekingbalance » December 20th, 2016, 6:49 pm

Since it is being proven time and again that costs are the main deciding factor in performance returns, and that it is almost impossible to pick a portfolio comprised totally of winners, therefore you are likely to end up with sub market returns, especially after 35 years, I would personally go for the tracker(s) option, especially if your daughter is as sensible as she sounds and doesn't want to follow the markets, deal with corporate actions, rights issues, capital calls, dividend reinvestment and share/IT selection.

35 years is a long time. Star managers like Job Curtis, Terry Smith, Neil Woodford will be dead or certainly long retired by the time she needs the money. What does she do at those points?

I know from experience, and suspect many on here do too, that it Is one thing to buy, say, £500 worth of a Trust or individual share per month for 10 years, but it is quite another to then have to redeploy £60,000 or perhaps even £100,000 of cash when that investment decides to wind itself up or is taken over for cash at the end of those 10 years.

Imagine your daughter being in that position and you not being around to help her out!

Other replies on this forum will tell stories of how wonderful a lifetime making share decisions can be. It can, but I would advise caution in remembering that the self selected cohort that inhabits an investment forum like this one is a very small representation of the real world. I know perhaps 100 people. I think I am the only one who frequents an investment forum. We are the odd ones, your daughter, statistically, almost certainly will not be.

Whether Vanguard 80% is the right option, I don't know. Others suggest saving 0.07% or whatever it is per year by buying three or four other Vanguard ETFs to recreate it for less. I personally do not think it is worth the effort to save such a small amount, but even if you think it is, do you think it is worth the 0.07% for the simplicity of Vanguard doing the rebalancing for her, every year for the next 35? I do.

BarrenWuffett
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Re: If you were starting again...

Postby BarrenWuffett » December 20th, 2016, 7:46 pm

If I were in my 30s and starting over I would definitely go for the Lifestrategy 80 fund - what could be simpler - globally diverse, mix of equities/bonds, auto rebalance, low cost.

Few investment trusts have outperformed the market over the past 10 years so the smart money would be invested in a low cost, diversified index fund. Of course temperament is also a big factor - "Don't do anything" is the best advice for most people most of the time, but it's not intellectually stimulating enough for some people to take seriously. No one is smarter than the collective intelligence of millions of other investors. Some, however, are a little more patient and less emotional.

Urbandreamer
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Re: If you were starting again...

Postby Urbandreamer » December 20th, 2016, 8:37 pm

BarrenWuffett wrote:No one is smarter than the collective intelligence of millions of other investors.


I have heard that very argument used to argue that you should not buy ANY share quoted on AIM. Because the index is abismal, all companies quoted on it must be bad! Or at least a private investor is only going to "pick the good ones"/"avoid the bad ones" by chance.

In fact the wisdom of crowds can only be said to be "smarter" when the market is efficient (all data is reflected in the share price) and the crowd is not being lead by sentiment (only data is reflected in the share price).

However I wasn't suggesting she should be involved in picking her investments (funds/trusts) because I thought it likely that she was born to outperform an index. I wouldn't expect anyone with no experience to be brilliant. No I suggested that she pick her investments so that she is involved, can learn and can find out if she enjoys doing so.

As seekingbalance suggests, here we are like footballers, golfers or tenis players. We do it because we enjoy it and naturally assume that others would as well if only they would give it a go.
Seriously, how do you know if you would like a tuna and bannana sandwich or jelly and peanut butter unless you try one. (Tuna and bannana was mentioned on the Fool decades ago so I did, not too bad but not worth the effort IMHO).

tjh290633
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Re: If you were starting again...

Postby tjh290633 » December 20th, 2016, 11:18 pm

It's funny. I started off with a monthly saving scheme into one unit trust, which happened to invest exclusively into ITs, but there wasn't much choice in 1958. About 10 years later I was able to make further investments in Unit trusts and then my mother died and left me some individual shares, plus some other fixed interest securities. I kept the shares but gradually switched into more unit trusts. When PEPs came along, there was little option than to invest in individual shares, until the rules were changed. My decision then was to concentrate on shares which paid dividends, at or above the market average, and gradually moved most of my investments into that form. I was surprised to find that I started to creep ahead of the market. By 1998 the divergence was becoming marked and by 2007 I was substantially in front. I suffered in the 2008-9 bear market, but recovered at a faster rate from that dip.

This was, of course, very similar to the HYP approach. My daughter recently sought my advice about what she should do with her own ISA, which had been managed by an IFA and which she felt needed changing. We decided that she should move into Investment Trusts, again using those with yields above the market average, and change ISA provider. We can keep careful records to ensure that we are on the right lines. My feeling is that, if you invest in tracker funds, then you can never do better than the market.

One of the problems in looking at results over a long period is that the FTSE100 is a relative Johnny-come-lately, and the index available until it came along was the FT30 Index, now hard to follow, although it is still published daily in the FT. The current FTSE100 index is very different now from what it was at the height of the dot-com boom, and so is susceptible to ebbs and flows in the fortunes of various sectors. It is also market-cap weighted, and we as private investors cannot follow that route with individual companies. Consequently a nominally equal-weighted approach has to be adopted. I set limits on the weight of individual shares, originally 10% of the portfolio value, but now 1.5 times the median holding value. I believe that it is this tactic, coupled with an LTBH approach and minimal trading, which has led to my outperformance. To avoid distortions due to injections of capital and withdrawal of income, I adopted a unitisation model, so that my "income units" are directly comparable with the market indices in their normal form, and my "accumulation units" with the Total Return versions.

Were I starting afresh now, I would definitely use one or more of the big global ITs as a medium for regular savings. Whether I would transfer to individual shares alongside or in substitution is a question that I don't think it is possible to predict. As I approach my dotage I contemplate making the change in the opposite direction, back to ITs, to make management of the portfolio much simpler.

What I would not do is go for ETFs or anything tagged as "Life strategy". I have avoided them in the past, and it's far too late to go down that route now.

TJH

Lootman
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Re: If you were starting again...

Postby Lootman » December 20th, 2016, 11:34 pm

tjh290633 wrote:IWhat I would not do is go for ETFs or anything tagged as "Life strategy". I have avoided them in the past, and it's far too late to go down that route now.

That is understandable from your position, I understand. I believe you are about age 80 or so? And so have no need to change what has worked for you.

But I would hate for anyone to infer that there is anything inherently wrong with ETFs. As someone who worked on the early formation of ETFs, I genuinely believe that their popularity (3 trillion dollars globally, and rising) is a testament to their validity for the modern investor. And your own words here reflect how investing imperatives do change over the decades.

GJHarney
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Re: If you were starting again...

Postby GJHarney » December 21st, 2016, 7:27 am

If I was starting again and with the benefit of a time machine I'd put everything into Lindsell Train, but if I were to guide my own younger self (or child), wanted a simple one stop shop/fire and (almost) forget approach then for me it would come down to a couple of options.

First a simple all in vanguard type cheap tracker, although assuming that you don't have £100,000 starter capital (in the case of vanguard) then you also need to consider the extra expenses and hassles of whatever secondary platform you use to invest into it. I get the attractions of ETF's like this although they are not for me (and I still have some probably unfounded suspicions and doubts about their structure).

But for a bit more interest but still keeping it simple it would have to be a IT approach with auto reinvested dividends. I know there is the non-IT alternative of things like Fundsmith, but while I like Terry Smith's buy and hold investment approach in general I find the charges a tad high and I'm always nervous of a fund that is so bound up to one person given the unexpected no.27 bus accident scenario could be disastrous for such a fund.

But back to IT's. I used to like the F&C multi-IT platform but less so now with its charges. I invest directly in Witan and Witan Pacific together and like their multi-manager approaches, but the ongoing charges are a little high. Scottish IT is a reasonably cheap single global fund option that allows cheap direct monthly dripping and reinvested divis (and with very good recent performance after years of plodding), but unlikely to be as a good as a tracker in the longer term once charges are taken into account.

The one I would use again myself as a single one stop is Baille Gifford. No platform charges, auto and free reinvested divis, no charges for rebalancing and fund swaps within the platform, the ability to invest in each fund from as little as £30 a month by a DD, and a good range of IT's inc Scottish Mortgage. In fact a regular investment mix of Scottish Mortgage, Monks, Saints, one (or even both) of their Japan funds, possibly Edinburgh Worldwide and if wanted a yearly rebalance and I'd be more than happy for me if I were 30 again and with a 35 year investment timeframe.

Dod1010
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Re: If you were starting again...

Postby Dod1010 » December 21st, 2016, 8:02 am

Firstly, it is true that in 15/20 years time Nick Train/Neil Woodford et al will be gone but there will be others coming along.

Secondly, however good Nick Train is (and I like his approach) I would not buy only one manager. Neither would I buy into only one investment house, although I like Baillie Gifford.

Thirdly buying an index fund is all very well but you then condemn yourself to the average, and you will learn very little about investing. That was not the question anyway. She wants her Dad to choose her investments.

She will not not touch them for 30 years whatever she may think at the moment, at least it seems very unlikely. If I were starting again, I would do pretty much what I did and that is choose say four generalist investment trusts, and spread the funds amongst them. Currently they would probably be Scottish Mortgage, British Empire,Finsbury Growth and Income, and Murray International. All more or less generalists and each with its own style, so the lady can get a feel for what they are up to or not, depending on her interest.

Dod

gadgetmind
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Re: If you were starting again...

Postby gadgetmind » December 21st, 2016, 1:07 pm

The Monevator "slow and steady" passive portfolio might be worth looking at. It does require an annual (ish) rebalance, but this is no big deal. The same site also has info on the best platforms for various products and pot sizes.

stuart349734
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Re: If you were starting again...

Postby stuart349734 » December 21st, 2016, 3:36 pm

Excellent discussion so far. Thank you.

I suppose that in practical terms there are two main choices:

(1) I could choose a couple of generalist investment trusts for starters, ones I hold myself, perhaps add another one or two over time. I would be comfortable doing that for as long as I'm investing in them myself and still alive and haven't lost my marbles.

(2) The fire and forget option of a tracker, a good example being the Vanguard Lifestrategy 80.

When I started investing, about 25 years ago, if you saw sense and avoided financial advisers, the value for money choice was investment trusts. There were no trackers or ETFs. I gradually expanded the number, still in single figures, to include Scottish Mortgage, Murray International, Law Debenture, Perpetual Income and Growth, RIT Capital Partners, Finsbury et al. I've found it interesting following them, although they've all been long term buy and hold.

I read a few Motley Fool threads, where people described similar investment histories, but eventually decided to jack it in, because even although they found choosing and monitoring investments interesting and were aiming for "above average" performance, they decided that, well, they'd had enough of that and wanted to "retire" from that and invest in a tracker instead.

If that's a conclusion reached after a lifetime of investing, why not go for the tracker option from the start? (I would still have the nagging doubt of "But couldn't I do better than average" ?!)

I suppose that if you're uninterested in choosing investments, it's a perfectly valid choice (provided you can keep all the costs to a minimum).

BrummieDave
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Re: If you were starting again...

Postby BrummieDave » December 21st, 2016, 6:06 pm

Interesting thread...

I am about to do similar for my daughter who has quite a bit currently within an ISA wrapper: it was in three ITs and I'm consolidating it down into a single investment to leave and forget.

I'm drawn between Vanguard Lifestrategy 100, Vanguard Lifestrategy 80, and Vanguard FTSE All World ETF (VWRL). Her investment horizon is at least ten years, possibly much longer.

I want it all in one fund/ETF so would welcome any views please.

BarrenWuffett
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Re: If you were starting again...

Postby BarrenWuffett » December 21st, 2016, 6:30 pm

stuart349734 wrote:
If that's a conclusion reached after a lifetime of investing, why not go for the tracker option from the start? (I would still have the nagging doubt of "But couldn't I do better than average" ?!)



Legendary investor Howard Marks does a deep dive into how difficult it is to outperform:
‘Why should superior profits be available to the novice, the untutored or the lazy? Why should people be able to make above average returns without hard work and above average skill, and without knowing something most others don’t know? And yet many individuals invest based on the belief that they can. (If they didn’t believe that, wouldn’t they index or, at a minimum, turn over the task to others?)’

Marks go on to say that only a small percentage of investors possess enough superior skill to outperform over the long-term. 

In his book 'Smarter Investing' Tim Hale suggests we all like to think we are a better than average driver- but not everyone can be better than average. Human nature drives us to compete with others, to succeed, and to be better than average. Investors try to get a better than average return and often select funds which promise to provide this.

However, the markets are very efficient. All the empirical evidence over decades shows that beating the market consistently after costs through skill is very difficult. The fund managers who can do this are rare and are very difficult to identify in advance.

The questions investors need to ask themselves are simple:

Do I really need to try to outperform the market?

Or should I be content with outperforming the majority of my investing peers and not underperforming my own investment plan?

Phileasrob
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Re: If you were starting again...

Postby Phileasrob » December 21st, 2016, 6:47 pm

Your daughter has 35 years to go to retirement so why bother with bonds at this stage? I would go for the Vanguard LS 100 unless she wants to go down the HYP route.


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